Question

The next dividend payment by Halestorm, Inc., will be $1.76 per share. The dividends are anticipated to maintain a growth rate of 7 percent forever. If the stock currently sells for $34 per share, what is the required return

Answer 1

12.18%

Step-by-step explanation:

From the question the next dividend payment that will be made by Halestorm Inc. will be $1.76 per share

This dividend payment is expected to have a growth rate of 7% forever

= 7/100

= 0.07

Since the current stock sells for $34 per share then the required rate of return can be calculated as follows

R= (D1/Po) + g

R= required rate of return

D1= dividend payment

Po= Current price of stock

R= ($1.76/$34) + 0.07

R= 0.05176 + 0.07

R= 0.1218×100

R= 12.18%

Hence the required rate of return is 12.18%